COURT FILE NO.: CV-23-80 DATE: 2024/05/17

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Joann Bell, Plaintiff AND: Carolyn Gerbac, Marion O’Shaughnessy and James Shawn O’Leary, Defendants

BEFORE: Somji J.

COUNSEL: Chris Trivisonno, for the Plaintiff Carolyn Gerbac, Self-Represented, did not appear Marion O’Shaughnessy and James Shawn O’Leary, in default

HEARD: May 16, 2024 (Perth)

Decision re certificate of pending litigation

[1] The Plaintiff Joann Bell seeks leave to issue a Certificate of Pending Litigation (“CPL”) against a residential property previously owned solely by the Defendant Carolyn Gerbac located at 12 Herriot Street, Carleton Place (the “Property”).

[2] Ms. Gerbac is a lawyer and represented Ms. Bell in family law proceedings. On September 9, 2021, Ms. Bell commenced an action for professional negligence against Ms. Gerbac for her failure to inform her of the limitation periods for equalization and to take steps to obtain an extension of those periods resulting in Ms. Bell losing entitlement to a half share of her former spouse’s pension. On April 12, 2024, McLean J found that Ms. Gerbac was negligent and ordered damages of $320,881.77 against her. Ms. Gerbac has appealed the decision.

[3] Ms. Bell seeks a CPL because she believes the Property is the only asset against which she can collect her judgment. Furthermore, on October 28, 2021, just after Ms. Bell commenced the negligence action, Ms. Gerbac transferred two-thirds of her interest in the Property to the other Defendants Marion O’Shaughnessy and James Shawn O’Leary. Ms. Bell claims that the conveyance was fraudulent and aimed at hindering her interests as a potential creditor.

[4] On September 19, 2023, Ms. Bell commenced an action against all the Defendants to set aside the Property transfer as a fraudulent conveyance and for punitive damages (the “fraud action”). Ms. Bell relies on ss. 2 and 3 of the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and associated jurisprudence which establishes that conveyances made for the purpose of hindering, delaying or defrauding creditors should be struck except for conveyances made for good consideration, in good faith, and to persons having no notice of the fraud: Stevens v Hutchens, 2022 ONCA 771 at para 18.

[5] The Defendants O’Shaughnessy and O’Leary did not file a defence to the fraud action and have been noted in default. They were not served with this motion.

[6] Ms. Gerbac has defended the fraud action. She was served with the motion materials related to the CPL request but did not respond. She was sent a reminder on May 14, 2024 to her known email addresses of the motion hearing date. She did not appear at the motion hearing.

[7] The issue to be decided is whether leave should be granted for the issuance of a CPL against the Property pursuant to s. 103 of the Courts of Justice Act, RSO 1990 c. C.43. This requires consideration of the following:

1. Is there a triable issue with respect the fraudulent nature of the conveyance?
2. Do the equities between the parties’ favour granting a CPL?

Issue 1: Is there a triable issue respect the fraudulent nature of the conveyance?

[8] To obtain a CPL pursuant to s. 103 CJA, a party must establish that there is a triable issue with respect to that party having a reasonable claim to an interest in land: Botiuk v Campbell, 2015 ONSC 694 (Div CT) at para 14.

[9] More specifically, in cases where a creditor makes a claim of fraudulent conveyance, a CPL is available where the creditor shows that there is a triable issue respecting the fraudulent nature of the conveyance: Botiuk at para 14; York University v Markicevic, 2014 ONSC 3227 (DIV CT) at para 8; McNeil v Kaloustian, 2022 ONSC 118 at para 64; Brookfield Residential (Ontario) Limited v Chen, 2022 ONSC 1419 at para 7.

[10] Upon finding there is a triable issue respecting the fraudulent nature of the conveyance, the court must weigh the equities for and against the granting of a CPL: Botiuk at para 19.

[11] In Ontario Securities Commission v Camerlengo Holdings Inc., 2023 ONCA 93 at paras 11-12, the Ontario Court of Appeal identified the following non-exhaustive list of badges of fraud that may be considered in determining a claim of fraudulent conveyance:

a. The debtor's financial state at the time of the transaction was precarious, including deficiencies in income, assets, solvency, and an inability to pay debts; b. The existence of a family or close relationship between the parties to the transaction; c. The transfer effectively divested the debtor of a substantial portion or all of his or her assets; d. The transfer had the effect of defeating, hindering, delaying, or defrauding creditors; e. There was evidence of haste in making the transaction; f. There was evidence of secrecy, fabrication, falsehood, destruction or loss of documents, or suspicious circumstances in the making of the transaction; g. The transaction occurred near in time to notice of debts or claims against the debtor; h. The consideration for the transfer did not correspond to the value of the property; i. The absence of a business purpose or other justification for the transaction; j. The transferor retained possession or use of the property; k. The transferor retained a benefit or an ownership interest in the property.

[12] Proof of one or more of such badges suffices to establish a prima facie case of fraud: Brookfield Residential at para 9; Thomsen v. O’Callaghan, 2019 ONSC 6947 at para 13.

[13] In this case, I find the conveyance contains several badges of fraud:

i. The transfer effectively divested the debtor of a substantial portion or all of his or her assets and had the effect of hindering, delaying, or defrauding creditors;

[14] It is undisputed that LawPro denied Ms. Gerbac’s insurance coverage, and consequently she is personally responsible to pay her judgment debt for negligence. There is no evidence that Ms. Gerbac has any other assets against which Ms. Bell can recover other than the Property, and therefore, the transfer effectively divested Ms. Gerbac of the only asset she has to satisfy debts.

[15] Furthermore, while Ms. Gerbac retains a one-third interest, exercising a writ of seizure and sale is now more complicated by the fact that there are multiple owners on title.

ii. Close relationship with purchaser and haste in making the transaction;

[16] There is evidence that Ms. O’Shaughnessy and Mr. O’Leary are long term friends with Ms. Gerbac.

[17] There is evidence that the transfer occurred in haste and under suspicious circumstances given it was made a little more than a month after Ms. Bell served a statement of claim on Ms. Gerbac. Hence, Ms. Gerbac would have been well aware of a potential damages award against her should Ms. Bell succeed in her negligence action.

iii. The consideration for the transfer does not correspond to the property value

[18] The Property registration suggests that Ms. O’Shaughnessy and Mr. O’Leary paid Ms. Gerbac $171,000 for their two-thirds interest in the Property. However, Johnston J’s decision dated May 7, 2021, on a request for partition and sale of the Property suggests that no interest was paid. Rather, the evidence suggests that Ms. Gerbac engaged in a more complex arrangement to jointly to purchase with the other Defendants another property in Westport for which she received only a 1% interest.

[19] On this basis, I find there is some evidence that Ms. Gerbac transferred the Property for inadequate consideration. Furthermore, I find there is evidence that Ms. Gerbac hindered Ms. Bell’s interest by taking out a further mortgage on the Property thereby depleting its value, and in doing so, added another creditor against the asset, i.e.. the bank, who would have precedence over Ms. Bell in recovering debt from this asset.

iv. The absence of a business purpose or other justification for the transaction;

[20] There is no evidence of any adequate business explanation for the transfer. Ms. Gerbac claims in her affidavit in response to the fraud action that the transfer was to secure a better mortgage. She also claimed that the other Defendants have no financial interest in the Property and only came onto title because she needed someone to co-sign. However, after the transfer was made, there is evidence that all the Defendants encumbered the Property with a further unexplained charge of $416,000.

v. The transferor retains a beneficial ownership interest in the Property

[21] The transfer still leaves Ms. Gerbac in possession of the Property as well as a one-third beneficial interest in the Property.

[22] Upon consideration of the above-noted factors, I find there is sufficient evidence that there is a triable issue as to the fraudulent nature of the conveyance and that the first portion of the test for a CPL has been met.

Issue 2: Do the equities between the parties’ favour granting a CPL?

[23] There is no evidence here that Ms. Gerbac has any other assets. A sale of the Property could prevent Ms. Bell from recovering any amount of her judgment.

[24] There is no evidence that a CPL would prejudice the Defendants. The Defendants O’Shaughnessy and O’Leary have been noted in default and therefore, are deemed to admit the facts pleaded in the fraud action including that the transfer was a fraudulent conveyance.

[25] Ms. Gerbac suggests that Ms. O’Shaughnessy and Mr. O’Leary have no financial interest in the Property and if accepted, there can be no prejudice to them.

[26] While Johnston J did grant an Order for partition and sale of the Property, he would not necessarily have known there was a fraudulent conveyance action commenced. Nonetheless, Plaintiff’s counsel advises that a CPL would not impact Johnston J’s Order. The CPL would be served on all the Defendants. Should the Defendants seek to sell the Property, they can move to allow for security to be posted in lieu to protect Ms. Bell’s potential interest as a creditor.

[27] With the transfer of the Property bearing several badges of fraud and with a certificate of pending litigation not being a bar to a sale of the property if security is posted, I find on balance that the equities favour the granting of a CPL.

Costs

[28] The Plaintiff seeks substantial indemnity costs for the motion in the amount of $22,910.

[29] Costs are in the discretion of the court. Rule 57.01(1) of the Rule of Civil Procedure, R.R.O. 1990, Reg. 194, sets out the factors that the court may consider in exercising its discretion to award costs in addition to the result of the proceedings and any offers to settle or to contribute made in writing.

[30] The Plaintiff filed a costs outline. While the motion was not complex, it required compiling an extensive evidentiary record. A total of 90 hours was spent in preparatory work and attendance at the hearing. Work was properly delegated to associates. I find the billings were commensurate with the work performed, the rates charged, and the experience of counsel.

[31] As a general rule, costs on a partial indemnity scale should follow the event and should only be departed from for very good reasons such as misconduct of the party, miscarriage in procedure, or oppressive or vexatious conduct: 1318706 Ontario Ltd. v Niagara (Regional Municipality) (2005), 75 O.R. (3d) 405 (C.A.) at para 51; 394 Lakeshore Oakville Holdings Inc. v Misek, 2010 ONSC 7238 at paras. 10-14. Here, I find that there was no need for a motion hearing. Ms. Gerbac could have consented to the issuance of a CPL. I find this constitutes unreasonable conduct warranting an elevated costs award but does not meet the high threshold for substantial indemnity costs.

[32] The overall objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances rather than the amount of actual costs incurred by the successful party. Rule 57.01(1)(0.b); see also Boucher v Public Accountants Council for the Province of Ontario, (2004), 71 O.R. (3d) 291 (C.A.) at paras 37-38; Deonath v Iqbal, 2017 ONSC 3672 at paras 20-21.

[33] Having considered that the Plaintiff was the successful party, the conduct of the parties, the expectation of the parties, the complexity of the issues, and the reasonableness of the costs request, I find that a costs award in the fixed amount of $18,000 is fair and reasonable.

Order

[34] There will be an Order that:

1. Authorizing the issuance of a Certificate of Pending Litigation with respect to the Property located at 12 Herriott St., Carleton Place;
2. the Defendants shall pay the Plaintiff fixed costs of $18,000 in 30 days.

Somji J. Date: May 17, 2024

COURT FILE NO.: CV-23-80 DATE: 2024/05/17 ONTARIO SUPERIOR COURT OF JUSTICE RE: Joann Bell, Plaintiff AND: Carolyn Gerbac, Marion O’Shaughnessy and James Shawn O’Leary, Defendants BEFORE: Somji J. COUNSEL: Chris Trivisonno, for the Plaintiff Carolyn Gerbac, Self-Represented, did not appear Marion O’Shaughnessy and James Shawn O’Leary, in default decision re certificate of pending litigation Somji J.

Released: May 17, 2024